Sony's Dilemma: New IP, Cheaper Hardware For Longer Product Life Vs. New Products

Despite massive layoffs and a first-quarter loss, Sony Corporation (NYSE: SNE) appears to be sticking to its guns, determined to maintain the Playstation 3's (PS3) prominence in the console gaming market even as the current hardware generation winds to a close.

At a press event this week at the Gamescom trade convention held in Cologne, Germany, the company announced plans to ramp up development both for the Playstation Vita (its relatively new handheld device) and the PS3 in the hopes that game developers will continue producing software and unique intellectual property (IP) for the aging console and its younger counterpart.

Still an incredibly powerful machine by any measure, the PS3 is now 7 years old. By continuing to introduce new concepts and ideas for how the device may be used, Sony is clearly hoping to maintain or even augment its life cycle in anticipation of the Playstation Orbis launch. But does the company's plan unveiled this week at Gamescom show that Sony is actually trying anything new, or is it just heedlessly advancing old and unsuccessful business models—the same ones that left it in its current state?

Sony hasn't done much to keep its current financial dilemmas a secret, either, when it publicized its internal restructuring after hiring Kazuo Hirai as the new CEO in April, or when it posted a dismal first-quarter earnings report last month. When he first took control, Hirai laid out bold ambitions to overhaul the consumer electronics company's current performance and public image, but was vague about how exactly he planned to do so.

At Gamescom, the company offered more details for how it planned to continue selling the Playstation 3 and Vita, which is not even a year old, but only by emphasizing points that, by any other account, would seem obvious: to sell more current-generation game consoles, and make more videogames.

This announcement was significant because it came amid rumors the company's next-generation console Playstation 4 (or, potentially, the "Playstation Orbis") could be coming out as early as 2013. So despite its weak performance over the last six years, Sony is still not letting go of the initial vision it had for the Playstation 3 to become a comprehensive home entertainment device, rather than solely a "gaming" system, when it launched in 2006. This could also mean that Sony will continue to fine-tune and update the Playstation 3 -- offering newer, cheaper models and developing exclusive games or other products -- well into the beginning of the Playstation 4's retail presence.

Sony has made it clear to the industry press that it wants to have the Playstation 4 release at the same time as (if not earlier than) the next Microsoft Xbox console. So if next-generation consoles are coming in 2013, the company would most likely want to focus its attention on developing a strong list of games, apps and related software to facilitate such a large launch event.

Step One: Introduce Higher-Profile Brands

But at Gamescom, Sony seemed eager to talk about everything but new hardware. Instead, the company unveiled a two-fold plan to increase sales of the Playstation Vita and maintain the Playstation 3's late-stage financial performance.

Firstly for its handheld or mobile products, Sony hopes to stimulate sales for its highly anticipated but so far underperforming handheld Playstation Vita by trying to lure big brand-name developers. This comes just a week after Sony Computer Entertainment Worldwide Studio President Shuhei Yoshida admitted to the game industry website Gamasutra that the company is having "a more difficult time than we had anticipated in terms of getting support from third-party publishers," possibly because of the market shift away from gaming-specific handheld devices like Vita and toward smartphones.

Given that the Playstation Vita is still very much in its infancy, promoting high-profile game titles makes sense seeing as it was launched with very few recognizable or respected game titles. But it also risks leaving Sony open to making the same mistake it did with its fumbling Playstation 3 launch.

The Playstation 3's main selling point—a comparative prowess in sheer hardware terms—also made the device prohibitively expensive for many prospective gamers. The console first launched in 2006 with a starting price of $600, putting it out a year later than the Xbox 360 and with a price tag several hundred dollars more expensive.

Game designers themselves even admit that the Playstation 3 is still full of untapped potential to this day. In an interview last year with CVG, "L.A Noire" creator Brendan McNamara said that the console still has "a lot of life left," citing its "amazing" processing power as reason enough to continue developing for the console. But since the PS3 has never attracted as many players as the Xbox 360, developers understandably shifted focus to the console that dominated the market for current-generation home-entertainment consoles in Europe and North America.

Step Two: Focus On Unique Intellectual Property

The second part of the plan for Playstation 3, therefore, involves redirecting Sony's focus toward supporting smaller indie developers to carry the console into more surprising territory.

Joining ranks with new Playstation exclusive intellectual property like "Beyond," "The Last of Us" and "Wonderbook" (the company's unique take on the e-reader), Sony announced a new line-up of games, all developed by Japanese studios -- "Puppeteer," "Rain" and "Until Dawn."

Indie titles released through the Playstation Network (PSN) or Microsoft's equivalent platform, the Xbox Live Arcade (XBLA) have the advantage of being relatively cheap -- users are more willing to gamble on a title running between $5 and $15 as opposed to a brand-new $60 AAA game at their local retailer.

Furthermore, indie titles are often critically acclaimed and attract extremely dedicated fanbases. Minecraft, an independent title initially released on the PC and later brought over to the Xbox 360, set a new record for that console's digital sales and doubled its developer's profits in a single year. Capitalizing on this trend, Sony released two new indie games -- "Sound Shapes" and "Papo Y Yo" this month alone. Both were met with near-universal praise from the game industry press.

Despite the repeated emphasis on new IP late in the current-generation console's life-cycle, little information was given about Sony's plans to cut costs for its actual gaming devices. Confirming earlier reports that the rumored new Playstation 3 "super-slim" model would not be unveiled at the conference, any mention of cheaper and more easily accessible hardware remained suspiciously absent. Sources speaking to the gaming site Eurogamer reported that the company is working on a price reduction for the Playstation Vita, but any time in 2012 was still "too early" to even consider it.

A chronic problem

So while Sony proposed to rejuvenate its current gaming devices with new and improved content, it is still facing the same problem of accessibility that has always plagued the Playstation 3 -- its hardware is too expensive to attract the audience that the Xbox 360 now has, and too complex to warrant many developer's time.

This points to a larger problem of Sony's apparently chronic inability to recognize and adapt to evolving trends in the technology and consumer electronics industry. At the time of the Playstation 3's initial launch, after all, industry analysts were expressing remarkably similar concerns about the fading tech giant in the hopes that the PS3 might actually revive its fortunes. Take a feature story in the September 2006 issue of Wired magazine profiling the company's struggles, aptly titled "Can the PS3 Save Sony?"

Sixty years after its founding in the ashes of postwar Tokyo, the company that gave us the transistor radio and the Walkman portable music player is deeply wounded. Only once in the past five years has Sony's all-important electronics division posted a profit; during that same period, the company's share price has fallen by nearly half. Its hit products of the '90s - Handycams, WEGA TVs, VAIO computers - were succeeded by stillborn wonders like the AirBoard, a $1,000 videoscreen that could be carried around like a laptop, and the Net MD Walkman, a too-little-too-late attempt to challenge Apple's iPod. Neither this latter-day Walkman nor Sony Connect, the online music store The New York Times once called "Sony Disconnect," would have anything to do with MP3 files - only Sony's cumbersome and proprietary Atrac3 format would do. Now, having ceded to Apple the portable-music-player market, Sony desperately needs to stay on top in videogames. It's not just that Sony needs a win; PS3 is critical to its entire strategy.

As Wired's gloomy forecast preceding even the launch of the PS3 shows, business and tech writers can often exaggerate the impact of a single product on a company's fate. Six years later, the Playstation 3 has not performed spectacularly by any standard. But Sony is still alive and continuing to produce current-generation technology and looking forward to next-generation hardware.

Still, the strategy that Wired highlighted predicted the greatest reason why Sony's strength in the consumer electronics market has waned over the past six years. At the time of its launch, Tim Sweeny, one of the founders of the North Carolina-based developer Epic Games and the creator of the Unreal Engine (a software development kit generally taken as the industry standard) noted that there was "at least twice the effort" to maximize the Playstation 3's performance capabilities compared to the Xbox 360.

To justify this comparative complexity, Sony tried to bill the Playstation 3 as being "much more than a game box." Ken Kutagari, one of Sony Computer Entertainment's (SCE) founders and commonly regarded as the "father of the Playstation," felt that the Playstation 3 is "actually a computer, one that's designed to lie at the center of the networked home, serving up films, navigating the Internet, doing nearly everything a PC can do and delivering jaw-dropping videogames besides."

Traditionally, Sony could rely on producing high-end and expensive hardware because they knew they had the requisite institutional and cultural support to build products like videogames around them. But that entire strategy may soon become obsolete. As a Wall Street Journal report from Wednesday explains: "Japan's current weakness is rooted in its traditional strength: a fixation with 'monozukuri,' or the art of making things, focused on hardware advances."

Hardware developers, rather than trying to advance their units' sheer technical prowess, focus on making products that are accessible to the widest possible swath of developers and consumers alike to expand the possible reach of any given product. Panasonic President Kazuhior Tsugo identified this as his company's central problem at a news conference in June, when he assumed leadership of the company in the wake of it posting its single greatest loss in its 94-year history: "Japanese firms were too confident about our technology and manufacturing prowess. We lost sight of the products from the consumer's point of view."

A solution?

The hope for a new strategy like "One Sony" is to avoid this pitfall and make all of the company's myriad devices more accessible and streamlined for users and developers alike.

Sony's perceived stubbornness may therefore simply be a problem of organization. As one analyst wrote of the company last November: "Sony remains a conglomerate, like many Japanese companies, with businesses that have little or no association with core strategy." Strategies for "more dynamic management and faster time to market" could therefore help stimulate a turnaround.

The "One Sony" plan promises to do just that, but developing new and increasingly robust hardware may unintentionally compete with the company's other goal to consistently develop and innovate for a single device such as the PS3. But with news of a cheaper and smaller home console reportedly forthcoming, Sony is determined to see the plan through.

"PlayStation has a history of delivering the unexpected both in our software and in our hardware," Sony Europe President Jim Ryan said during the Gamescom press conference. "We will continue to do that."